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Persimmon was the successful defendant in an earlier claim arising from a property transaction dispute pursued by CPH. During the earlier claim, Persimmon uncovered numerous dishonest documents and witness statements by CPH. Ultimately the judge in that matter dismissed CPH’s claim and awarded indemnity costs on the basis of CPH’s dishonesty and for advancing a claim it knew was hopeless.

CPH had taken out after the event insurance with Great Lakes in respect of the earlier claim.

In October 2008 CPH was wound up and Persimmon issued a claim against Great Lakes pursuant to s.1 Third Party (Rights Against Insurers) Act 1930 to enforce CPH’s ATE policy. Great Lakes had avoided the policy following the judgment against CPH, on the basis of CPH’s material misrepresentation/non-disclosure during the proposal stage and various breaches of claims conditions.

Decision

Effectively, in the present claim, Persimmon was put in the difficult position of having to seek to adopt the rights of CPH, whose dishonest evidence it had established during the defence of CPH’s claim.

In bringing the claim against Great Lakes, Persimmon had tried but failed to argue that CPH had actually given its ATE insurers the truth to the best of its knowledge and belief.

Both parties’ experts agreed that all the alleged misrepresentations and non-disclosures were material. As a result Persimmon abandoned its case that a special approach was required for ATE insurance to the effect it was the risk assessment of the legal team retained which was important and not the facts disclosed at inception.

With regard to inducement, Steel J could not disregard the judge’s decision in the earlier claim as his judgment was based on his finding of CPH’s dishonesty during that trial. As such there had been no waiver of the right to avoid. Great Lakes had no knowledge of CPH’s dishonesty and therefore could not have waived the right to avoid.

Persimmon’s claim that the underwriter had been negligent was rejected. Although many underwriters would have rejected the risk, it was not possible to say that underwriters would certainly have rejected it as being too risky.

Accordingly Persimmon’s claim was dismissed.

Comment

ATE cover is taken out to protect the claimant in the event that he loses his case and is ordered to pay the defendant’s costs. In this case, the circumstances of the defendant’s successful defence triggered the ATE insurer’s entitlement to avoid the policy and thus left the successful claimant unable to recover its costs.

The case follows the established insurance principles of insurance law in respect of avoidance and waiver and confirms that ATE is subject to these principles.

It is clear that, where concerns are raised over the financial standing of a claimant, a defendant should not simply rely on the fact the claimant has given notice it that it has the benefit of ATE cover. An application for security for costs should also be made.

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